Penny Stock Scam
• the Pump and Dump
• the Dump and Pump
Once proper knowledge is gained, any penny stock scam is no longer a risk; rather, each such scam is an opportunity
Warning About the Most Popular Penny Stock Scam or Scheme!
Pump and Dump and the Dump and Pump are types of stock scams or schemes created by professional marketeers who work independently or work for or with micro-cap or nano-cap stock companies, and/or your broker, even the mafia, in an attempt to make money off other traders.
While you may be familiar with the Pump and Dump, many investors are especially naive about the Dump and Pump, and not much is written about it either.
As an extraordinary investor, you will not be a victim of a Pump and Dump or even a Dump and Pump penny stock scam; rather, you will likely already be invested in exceptionally fine unnoticed companies that marketeers will soon target for such promotions or demotions.
Here is how the Pump and Dump scheme works:
• These marketeers are Stock Promoters who buy large amounts of a particular unnoticed, thinly traded nano or micro cap stock at bottom prices. Such buying is done a little at a time over a period of weeks, but usually months, so as not to make the share prices trend up too high. They also do this to give the stock the appearance of gaining investor interest.
These stock are often times pretty good, but not always.
• Then the stock promoters do their job of promoting the thinly traded penny stock or illegal or non-existent stock at the now pumped up prices to investors causing the share prices to jump 10% to as much as 50%, maybe more.
• The naive investors see all the positive hyped up marketing news about the particular stock, and they see the recent trade activity and increasing price and volume of shares. This makes many investors feel excited about the stock.
In this type of penny stock scam, the naive trader will be programmed by the marketeer stock promoter into feeling the stock will go up as much as 300% or more based on the promises of such optimistic news especially after seeing all the trading activity going on with the stock.
• Such traders then buy shares of the stock hoping to rake in the profits.
• The huge buying activity of the thinly traded stock by traders causes the shares of the stock to skyrocket in price above the already inflated prices. The share prices skyrocket because not enough sellers are available to meet present buy orders at current prices. The price of shares rocket to over 15% to more than 100% over a short period of time.
• Such huge new buying activity creates liquidity for marketeers to now sell shares at the inflated prices. The liquidity is created by the high trading volume (trade activity), increased buying activity and increased market cap.
The law of supply and demand is alive and well in that many buyers are available to buy up shares that marketeers are now dumping/selling to hopefully make a huge profit.
NOTE: Liquidity means that enough buyers are available to handle all those who now desire to sell shares of that stock at similar prices. Number of public shares and shareholders is also important for liquidity to handle larger buy and sell orders.
• The marketeer stock promoters, along with a small number of observant/knowledgeable traders, begin selling shares of that stock over that same period of time traders continue to buy the same stock causing small ripples and dips in the continued ascent of share prices.
• The ascent in stock prices begins to slow and waver. The stock promoters will say that this is a breather and any dip in prices is an excellent opportunity to jump in and buy shares or to add more shares to one's portfolio.
• At some point the marketeers may dump the remaining shares of stock they owned which temporarily or permanently causes the share prices to plummet as low, or near as low, as the levels the stock once traded before the marketeers purchased them.
• Marketeers may re-promote the stock a number of times in similar pump and dump schemes for the same stock over a period of months and years creating cycles of highs and lows in share prices and trading volume.
In this penny stock scam, whether prices of shares plummet, and how far they plummet, or whether they eventually trade higher again depends on a number of factors, some of which are the following. . .
Factor 1: A non-existent or fraudulent company, or just a dud that was falsely promoted, will soon be found to be the sham that it is and will eventually be dumped wholesale.
Factor 2: A good company that was unnoticed just needed some good promoting to gain investor interest. Such a stock is likely to continue actively trading with buyers and sellers but generally not as high as hyped up media announcements created.
In some cases though, if the stock is exceptional on its own merits, the now recognized stock will eventually continue trading beyond the highs created by the marketeer promotion.
Factor 3: The expertise of the marketeer to promote a stock and quickly adapt strategies to gain the desired result.
Many investors are suckers of this penny stock scam.
Those investors or traders who got suckered by this penny stock scam bought shares of the stock at inflated prices. As prices of the stock start sliding, some suckered traders see the writing on the wall and will frantically sell their shares hoping to cap their losses.
Other suckered investors hold on for the long term, hoping the shares will go up in value again based on more marketeer hype that states the recent lows are only temporary and are buying opportunities. They confidently state that the stock will trade much higher.
Other sucker investors/traders continue buying on lows based on the good news.
All this trading activity after the stock promoters sell, creates the chopping swings in share prices just before its final plunge.
The ideal for the small company that is genuine, and that enlists the services of marketeer stock promoters in such a penny stock scam or scheme, is that investors continue holding shares or buy more shares of the stock for the long term well after the marketeers pump and dump penny stock scam has ended.
If this ideal is successfully realized, then the penny stock scam successfully causes the stock to enjoys a continuation of near recent share values caused by the marketeer promotion of their company, or may cycle up and down to match any more good news about the now highly watched stock.
Although the purpose appears noble in this case, the scam is that many traders who were programmed by the marketeers to invest on over-positive news and skillful hype will more likely lose much of their investment.
The company underlying the stock in whose shares are now trading at a higher price, provides leverage for working capital for the company while perhaps also allowing the company to remain listed on a more prestigious stock exchange or to apply for such an exchange to be listed.
Being listed on a more prestigious stock exchange is important in that many investors and traders see such listed companies as more stable, high quality investment options. Such a company has a far greater chance of receiving favorable financing.
This penny stock scam can backfire on the small company forcing it to fold if the stock irrecoverably plummets after a marketeer scheme. That is a risk that good speculative unnoticed companies take when enlisting such advertising services.
• The marketeers win big time from this kind of penny stock scam not only from payouts by the organizations or penny stock companies who hired them, if that is the case, but also from buying shares at lows and selling them at highs after they are done promoting the company.
• Most of the investors who bought a penny stock scam or scheme lose all or most of their investments to the penny stock scam promoters.
• Trillions of dollars are taken from investors annually who are duped into buying shares of companies these scam artists promote, particularly in this type of penny stock scam - the Pump and Dump.
Forward type Stock Splits and the Pump and Dump - synergy in action
A variant of the Penny stock scam - Pump and Dump - starts out with an actual dud or scam company. Insider manager scam artists promote it with actual false news releases that are hard to prove, and then use forward stock splits within a complex marketeer campaign.
Why this is done. . .
• Create more shares, thus greater potential market cap, greater potential liquidity.
• Gives the false impression the shareholders are getting a reward for investing and that the company is doing very well with great potential for future returns.
• to further entice its shareholders to buy more shares, thus inevitably raising share value.
• to create more opportunities for scam artists to make more money from the scam... suck its shareholders dry before totally dumping shares.
This Pump and Dump variant is fully explained under the following topic heading: Technical Analysis - Benefits and Limitations
Marketeer promoted stocks are on the rise and are getting more creative, adaptive and professional.
The Dump and Pump penny stock scam
The Dump and Pump is a similar marketeer penny stock scam to the Pump and Dump. The marketeer of a Dump and Pump is called a Stock Basher.
This newer scam trend has been growing steadily for more than 20 years in the USA; yet, many investors are only mildly aware of how this scam works, or how organized and professional it can be.
In this type of penny stock scam, the marketeer stock basher demotes, rather than promotes, a sleeper quality but struggling stock. They demote a stock by telling half truths and bending the truth concentrating on the negatives in an attempt to cause doubts in the minds of investors about the company, its methods, and products behind the stock.
A closer look at the Stock Basher. . .
The marketeer stock basher targets stocks that have previously been marketeer promoted and are still trading fairly high, or a company with potentially good prospects that is gaining investor interest but is still struggling. Both these types of stocks are targets because they are still weak and highly speculative.
These companies are speculative to highly speculative because no one yet can really tell if their products in development (or products ready to market) will really pan out, or even if the company will have the finances to continue operating to see that potential success.
Listed Companies with unacceptably huge debt but great products in development are also targets of a stock basher demotion.
The NYSE MKT (Aka American Sock Exch) is a prime environment for the Pump and Dump and the Dump and Pump because of the many small listed struggling companies on that exchange. They are listed, have potential, and appear exciting to even seasoned investors, which is why they make such good targets for scam promotions and demotions.
• Such tiny listed companies are frequently promoted by marketeers that concentrate on promoting the exciting products in development.
• The stock basher monitors, or may be involved in, this stock promoting activity and will short the stock after share prices have peaked to about as high as they will go.
• The stock basher will then concentrate its bashing campaign around the company's debt and predictions of impending insolvency or bankruptcy, which could realistically happen.
• This type of stock bashing campaign involves the shorting of a stock.
• A good company with unacceptably huge debt will not likely recover from such a destructive campaign.
Investors and traders of such speculative stocks can, therefore, be easily manipulated to sell their shares when the bashers focus in on the weaknesses and concentrate on exposing those weaknesses. Such stocks will plunge in value over the short term over the panic on such a penny stock scam. That is the objective of the basher campaign.
• Penny stocks listed on a stock exchange, instead of buying shares, the stock basher will short or naked sell shares of the stock before they begin their campaign of destruction on a struggling but otherwise usually a good quality exploration or developmental company. That is the Dump of the Dump and Pump.
NOTE: OTC Penny stocks can also be shorted, although your broker may restrict the short selling of thinly traded OTC stocks.
• For really good penny stocks listed on the OTC and OTC BB and even good solid stocks on a stock exchange, the stock basher's purpose for demoting a stock is first to make money off their shorts. This is the dump.
Then, to buy up shares after the share values plummet to a new bottom created by the marketeer demotion. Then they begin promoting the stock. The stock must trend up again, because it is worthy. This is the Pump after the Dump.
• They (the stock bashers) demote stocks using similar sources of media that marketeers promote stocks, but concentrate their efforts in news letters, message boards, chat rooms, and financial articles.
• The basher almost always works in groups or teams with a specific plan of attack in mind, will trade passwords, and use different aliases and computers to hide their identities.
• They write negative factual information leading to baseless allegations of fraud to the Securities and Exchange Commission (SEC) and other government agencies, and to suppliers, contractors, partners, major investors, etc.
• The reason for this campaign of destruction is hopefully to cause the struggling company to at least temporarily lose credibility. The purpose of all this is to show that their allegations are correct, that the company is being investigated or even sued for fraud and is a sham.
• The basher will pretend to be helpful in warning and alerting traders of the "scam" stock. They encourage you to sell and cut your losses before the stock sinks further, is delisted, or becomes extinct.
• The purpose of the stock basher in this particular penny stock scam is to make a good profit off of their shorts (or the naked sell orders of broker-dealers) from penny stocks that are listed on a stock exchange and the OTC as the shares of stock are being dumped by rattled investors and traders.
When the shares sink far enough, the bashers then buy back the shares they shorted for a future profit. They will then begin promoting it - this creates the Pump after the Dump.
• As noted before, OTC stocks can be shorted, but shorting thinly traded OTC stocks are restricted by many reputable brokers to protect their clients from losses. Shorting thinly traded stocks can be extremely risky. I strongly advise against shorting penny stocks.
This type of penny stock scam affects the entire company, not just the stock's share prices. An already good company will likely recover after the dump and pump is complete and now becomes the target of marketeer promoters. The bashers likely become the promoters, after the bottom is reached.
Bashing is not illegal if the bashing does not spread clearly false information about the company. That's free speech and freedom of the press to report news, even if it is one-sided.
There is no freedom of the press for those who deliberately spread false information about anything or anyone.
Two major strategies the stock basher uses to benefit from demoting a stock:
1. The stock basher hopes to benefit by shorting shares of the stock and riding the prices down as rattled traders sell their shares.
2. Once share prices are as low as they will get, the stock bashers not only buy back the shares they shorted but may also buy hefty positions in a good solid stock and wait for the share values to recover from their artificially low prices. The stock basher helps the shares recover by spinning off positive marketing news - the pump.
The Extraordinary Investor benefits from the Dump and Pump penny stock scam in the following ways:
• will already be following exceptional stocks on a penny stock list for potential investments and be ready when such dumping of shares takes place as opportune times to invest.
• if already invested in a stock targeted to be a victim of a dump and pump, the Extraordinary Investor will already be informed of, and alert to, this type of penny stock scam by keeping himself up-to-date on media. He will sell (take profits) at the first sign of the professional dump and pump promotion on a speculative stock.
NOTE: Since an extraordinary investor only invests in exceptional stocks trading at a bottom with strong downside resistance, the likeliness of being a victim of stock bashing is very minimal.
• The Extraordinary Investor will buy his position back at bottom prices if the stock still has solid potential to explode in value.
• If the dump and pump appears ineffective and the company appears too strong to thwart investor confidence, the Extraordinary Investor will hold tight till the dump and pump is complete even if the stock prices temporarily dip 15% or even 20% below its bottom.
These kinds of price dips are common before a major trend up. The extraordinary investor will have enough information to know that the trend is up for such a company.
More traders than ever are learning about such penny stock scams and their stock promotions. Such traders are either avoiding such stocks or are attempting to do their own investigations and determine the likely hood of profitable trades.
Even so, more traders than ever are still being duped out of trillions of dollars yearly from such marketeer scams mainly because they don't know how to identify them or take advantage of such schemes.
Legality of penny stock scams:
Unfortunately, most such scams are done in such a way as to avoid legal problems. Only a fraction of such scams ever see the inside of a court room.
Posting negative truthful information about a company is not illegal. Even so, there are rules and laws that apply to the posting of information on public message boards, chat rooms, the the posting of articles on a financial site, and every other form of media sent to the public.
Intentional misinformation such as false financial reports, or any other false information about a company, is actionable by governmental authorities, especially if it has an effect on the trading price of a security. Even so, the basher must be reported to proper authorities for such government actions to take place.
Scam Artists and TOS of Financial Msg Boards and Chat Rooms
Financial message boards and chat rooms in particular have detailed terms of service (TOS) for posting by its members that reflect those rules and laws..
Reporting TOS violations: Most message boards make it easy for other viewers or participators on message boards and chats to report violations of TOS.
Discipline of Violators: Not all service providers of message boards are vigilant about monitoring the board and/or reviewing reports about violators of TOS. Even so, blatant violators will be disciplined eventually, usually progressive discipline, which consists of the following actions:
• A letter of warning to the violator
• removal of violators' illegal posts
• blocking future posting by violators for a period of time
• banning repeated violators from a message board
• legal action against repeat violators.
How is the penny stock scam, such as the Pump and Dump and the Dump and Pump promoted?
Forget about the
• cheap penny stock list or free penny stocks lists
• cheap hot tips or free hot tips
• cheap hot stocks or free hot stocks listing services
• stocks listings services
• cheap or free penny stock newsletters
• cheap or free penny stock reports
• penny stock robots
• penny stock guru postings on stock focus headlines
• message board postings by marketeers pretending to be average traders or/and professional traders. Stay away from the message boards if you can. Do not communicate with them or ask for their advice. Be confident in your own research.
A stock promoter's or stock basher's siren call can cloud your emotions and mess with your logic and cause you to panic. I know this is true, because too often in the past I have been a victim of the siren call sending my investments into ruins.
• as spam in your email boxes or faxes.
• as broker advice by phone or third parties.
These kinds of free or cheap services are everywhere on the internet.
All of the listed sources of media are common avenues in which a penny stock scam is promoted or demoted. The most popular and devastating penny stock scam is the pump-n-dump scheme. Just as devastating, but not nearly as popular is the dump-n-pump scheme.
The internet makes such marketing cheap to do and there are plenty of pigs, novices and gullible traders who are easily taken advantage of. Unfortunately as well, even seasoned investors and traders become victims of such scams. Nothing but scams!
Now that you know how to identify the most devious penny stock scams, be careful and stay away from them unless you know how to take advantage of them for a small profit.
I know from past experience that marketing promotions in the pump and dump only take place after insider traders, such as marketeers, have already purchased a hefty position in the stock. So the stock is already trading higher and does not interest me.
I do not invest in stocks that are being promoted. I do not like playing with fire or taking unnecessary risks for such mediocre rewards.
I am never that hard up to find an exceptional stock to invest in, and neither will you be. And you will know when they are trading too high by viewing the historic prices of shares of that particular penny stock for the past few years, few months, weeks, etc.
NOTE: Except in rare circumstances, if a company's history is less than 3 years, I would stay away from it. Not enough data for me to make a good decision.
Consider as well that most companies that begin trading on a stock exchange, initially trade for $3, to meet minimum initial requirements to be traded on a stock exchange. Even newer penny stocks on an OTC usually start trading higher.
If the new stock does trade higher than its initial public offering, it will rarely ever last. Within a few years max the price dwindles to actual pennies. It doesn't matter that the company is working on something exceptionally wonderful, that is just how it is. So stay away from companies with little stock history.
Some of the penny stock services I listed may be genuine, but most of them only appear genuinely helpful when, in reality, they are setting you up to be duped into being a victim of their schemes to fatten their own pocket books.
You can train yourself to smell a penny stock scam a mile away...
Never buy a stock on a promotion that has increased in value significantly with the promise that the share prices will go much higher.
If it sounds so good, then who is stopping you from researching the history of the company and its share prices over a 5 day to 5 year period?
Who is stopping you from doing solid fundamental research on the company - if any such history exists?
Don't just take 'their' word for it.
Media can report anything they want. Many times media will stretch the truth or leave important facts out to obtain the intended purpose. A full research is vital and not difficult to do.
Always buy at 'bargain prices' and at historical lows of fundamentally high potential stocks. If you do this, then you will avoid being a victim of penny stock scams including the Pump and Dump and the Dump and Pump.
'Bargain prices' are determined by a complete fundamental analysis of the company. You are looking for a company with high explosive potential that is presently a sleeper (not currently being followed), or is being dumped by emotional traders. This is all covered on this site in more detail.
By your diligent independent study as this site is teaching you, you will actually be in a prime position to profit off the effort of the marketeer promotion and demotion.
Are you in the market to make money or not?
Then . . .
• Do not be lazy!
• Do not gamble your life savings!
• And please don't be so trusting of what you read even if the source appears reputable
• Do your own research - this site shows you how. Compare information for a stock from various sources.
If hardly any history of the stock or its shares exist past a year treat it as a penny stock scam - not enough information to make an accurate trade.
Only the Extraordinary Investor typically invests in those quality penny stocks that marketeers target to promote before marketeers target, invest in and promote them.
If you are invested in a penny stock of an exceptional company before it is promoted by marketeers, then you are ahead of the game and will profit tremendously from their efforts with minimal risk.
Even so, be alert for the Dump and Pump penny stock scam.
• Watch for - put on your list - exciting penny stocks that that you wish were trading lower. Keep your eyes open for a basher campaign. First you will see technical signals for a high volume of sell orders. The basher marketing campaign will begin soon. Hopefully the basher campaign works, and the stock temporarily plunges. That is your opportunity to pick up shares before it explodes again when the basher's complete their job.
• If you recently purchased shares of an extremely high potential stock at bargain basement share prices the likeliness of a basher campaign is almost nill. Stock bashers are after penny stocks that are trading at highs, not lows.
Do a thorough search of the history of any company of interest before investing, and continue to monitor.
Marketeers do similar research that the extraordinary investors do to find exciting companies to invest in and then promote.
Wouldn't you do the same research before buying a car or a house, or even a new product or brand name from the grocery store? How much more important to you is a good financial investment worth thousands of dollars in potential profit?
Any penny stock scam is easily avoided/exploited: with proper knowledge, once you know what to look for and how to apply it. This site is showing you how to identify such scams and profit from them.
Unfortunately only about 1% to 3% of investors will listen to the advice given. Those 1% to 3% investors will be prepared, training themselves not to be hypnotized by the siren call of stock promotions and demotions.
Perhaps 87% of investors will find out the Hard Knox way (by first-hand experience) how these scams can destroy your savings and your dreams, your social status, your family, and your life or at least stop you from making real money in the stock market.
Unfortunately, many investors still do not learn from Hard Knox how to trade stock profitably and continue making the same mistakes repeatedly, from one penny stock scam to another, until they are broke and give up.
This site will program and empower you to be Master rather than a follower/victim of the penny stock scam.
Become Master rather than Victim: Always do your own research on a stock - don't let anyone do this for you unless you trust them with your life. If you learn to research like this site guides you to do, and are faithful to do as you have learned, then you will be Master over your own destiny and profit tremendously.
You will already have a position in a solid genuine stock before the marketeer promoters have the opportunity to buy into the stock and pump it up by advertising to investors.
You will have already sold your position in the stock before the stock promoters sell their shares - that is, IF the stock is REAL and high potential. If the stock is NOT real or high potential, then you would not be invested in it anyway.
WHY? Because You are the extraordinary investor.
In essence, as an Extraordinary Investor, you profit off of all the work the Marketeer does to promote or demote a stock. You profit off of all the other traders who purchase shares after you do.
Both the Marketeer of the Pump and Dump and the Extraordinary Investor use similar research to target and invest in a stock. Unlike the Extraordinary Investor, the marketeers promote those stocks after the Extraordinary Investors are already well invested in them.
Never invest in stocks listed on pink sheets unless you know the company very well, has a long and noteworthy history, has updated financial information, and feel the company is solid and has unusually great potential after taking into account all fundamental data. If the pink sheet company does not list its financial data, I would not consider it.
In the future section called "Technology Stocks," I will give all the information you require to understand stocks traded on the pink sheets. Pink sheets, more so than any other US financial market, have stocks that are victims of some form of penny stock scam.
You have now completed this important page called: Penny stock Scam - the Pump and Dump
But the subject of risks in penny stock trading is too important to stop here. To avoid the risks of such scams and profit by them, you must learn a bit more.
When you are ready, please continue onto the next lesson.
Stock List Scams